With vaccine breakthroughs pointing to a brighter 2021, what does this mean for emerging-market equities and debt? A senior economist and two equity and debt strategists weigh in.
- Emerging markets continue to recover from the impact of the COVID-19 pandemic. Support from central banks is expected to continue.
- A Biden administration likely means a larger fiscal deficit in the US and a weaker US dollar, which we view as a positive for emerging-market equities versus developed markets.
- The same weak-US-dollar scenario should also provide a boost to local currency debt, which we perceive as generally undervalued in emerging markets.
China’s economy is set to continue to recover in 2021. Schroders’ equities and debt
fund managers, together with our emerging-markets economist, look at what’s in store.
- Economic growth in China is set to accelerate in 2021 as the recovery continues and the impact of stimulus measures launched this year feed through.
- In equities, sectors providing exposure to long-term growth themes in China should continue to outperform. A broad global economic recovery should also support cyclical sectors where valuations are still cheap relative to growth sectors.
- In Chinese bonds, sound economic fundamentals, attractive valuations, and a positive outlook for the renminbi should all prove supportive.
Global equities can continue to perform well in 2021, but tech may have to share the limelight with some unloved areas. Meanwhile, a number of mega-trends will continue to gather pace.
- While some worry about the possibility of a tech bubble, the “technological transformation” already underway well before the pandemic has simply been accelerated by COVID-19 and shows no signs of slowing.
- There may be substantial dispersion in every sector as the global economy transitions in 2021. As such, stock selection remains highly relevant, in our view.
- Mega-trends and thematic investing around well-being are expected to play a growing a role in 2021, and we think having exposure could be highly incremental to a more traditional index-based equity portfolio.
Important Risks: Investing involves risk, including the possible loss of principal. • Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. • Foreign investments may be more volatile and less liquid than US investments and are subject to the risk of currency fluctuations and adverse political and economic developments. These risks may be greater for investments in emerging markets. • Investments in particular sectors may increase volatility and risk of loss if adverse developments occur.
The views expressed herein are those of Schroders Investment Management (Schroders), are for informational purposes only, and are subject to change based on prevailing market, economic, and other conditions. The views expressed may not reflect the opinions of Hartford Funds or any other sub-adviser to our funds. They should not be construed as research or investment advice nor should they be considered an offer or solicitation to buy or sell any security. This information is current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Schroders or Hartford Funds.